Block Energy on the rise again as strong West Rustavi results continue (BLOE)

Block Energy (LSE:BLOE) was trading at
another all-time high on Wednesday morning, with shares rising 27.6pc to 10.6p.
The Georgia-focused business, which now has a £22.5m market cap, revealed
that the strong results at Well 16aZ that
helped its share price to explode earlier
this month have continued.

The well, which is based on Block’s West
Rustavi field, is continuing to produce at rates consistent with the average
test flow rate of 1,100bbl/d announced on 1 April. This rate, which is being delivered
through a quarter inch choke, exceeds Block’s 325bbl/d target rate
significantly and has previously been called ‘extraordinary’ by the firm.

In Wednesday’s update, the business said
it has reduced the choke to just over 3mm – the smallest size possible – while
it addresses production capacity and offtake requirements. With the
unexpectedly results triggering an immediate need to upgrade West Rustavi’s
production infrastructure, Block said it has now negotiated terms on additional
storage facilities. The organisation is also negotiating new oil sales
contracts with local and international purchasers. It added that both parties
have shown ‘strong interest’ in supporting its future development plans.

Finally, Block revealed that associated
gas production from 16aZ will be sold to Bago – one of Georgia’s most
significant private gas suppliers and purchasers. The company signed an MoU
with Bago last year for the offtake of all of West Rustavi’s gas, subject to a
minimum of 1,000m3 of gas a day. As part of the deal, Bago will finance all
required gas infrastructure for the field. This could include pipeline tie
backs to local infrastructure and gas processing plant solutions.

Block said the agreement opens up
additional annualised revenues of c.$1m through the sales of 16aZ’s 14,000m3/d
of gas. Bago is expected to start buying the gas within eight weeks of signing
contracts – it is currently sampling production from the well.

Block’s chief executive Paul Haywood said: ‘We are very happy to confirm the exceptional test results announced at the beginning of the month. 16aZ continues to flow strongly, going from strength to strength with a steady increase in pressure as the well cleans up. With an average production rate of 700 bbl/d, the well is expected to deliver gross monthly free cash to the Company of US$1m at the current price of US$70/bbl for Brent crude oil (with an approximate two month well cost payout).

‘We are also delighted that, with associated gas flowing from the well, the gas offtake agreement we entered into with Bago last year will now come into effect, offering the Company the ability to switch from flaring to swiftly commercialising its gas at little to no cost, potentially adding around US$1.0m of additional annual free cash to Company’s cash receipts. We look forward to working closely and expanding our relationship with Bago, as we seek to unlock the field’s contingent gas and oil resources.

Haywood added that Block is working on an operational
market update that will cover its planned oil and gas development. This will
include the scheduled spud date for the sidetracking of West Rustavi’s well 38,
a neighbour and analogue to well 16aZ. It will also cover plans for the
appraisal of the field’s existing gas discoveries, the acquisition of a 3D
seismic survey and, a revision of the CPR consequent to the performance of
16aZ.

He added: ‘2019 promises to be an exciting time for Block Energy, and we look forward to updating the market as we continue to work hard to realise the great potential of our assets.’

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The S&P500 has reached new highs again. It’s likely to run on to tackle the 3000 milestone level shortly, where the chart suggests strong headwinds lie. But during the past decade bull run, (assuming we’re still in one) investors have seen this scenario play out positively before - where a big move upward followed with gusto, despite seeming unlikely. Will the third time be so lucky?

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